Ukrainian cabinet dismissed over gas dispute

Jan. 11, 2006
The Ukrainian Parliament on Jan. 10 voted to dismiss the cabinet for its handling of a dispute over purchases of Russian natural gas, creating the possibility of a collapse of the government.

By OGJ editors
HOUSTON, Jan. 11 -- The Ukrainian Parliament on Jan. 10 voted to dismiss the cabinet for its handling of a dispute over purchases of Russian natural gas, creating the possibility of a collapse of the government.

The latest upheaval stems from a recent disruption in gas supplies to the Ukraine from Russia. It involves a dispute between Ukraine and Russia's gas monopoly OAO Gazprom about gas prices and transit fees (OGJ, Jan. 9, 2006, Newsletter).

Parliament gave the existing cabinet 60 days to finish its work, a government spokesman told reporters in Moscow. The motion to disband the cabinet was approved by a vote of 250-50 parliament members.

Ukraine President Viktor Yushchenko called the vote unconstitutional, saying he might disband the parliament. His comments came while he was visiting Kazakhstan. Russian President Vladimir Putin and Yushchenko attended the inauguration ceremony for Kazakh President Nursultan Nazarbayev, the Associated Press said.

Yushchenko's opponents dominate the parliament. On the internet, Yushchenko posted a statement suggesting that his cabinet ministers will remain in their positions through parliamentary elections scheduled for Mar. 26.

Nikolai Poludenny, presidential adviser on legal affairs, told the online edition of Ukraine Pravda newspaper that currently there is no constitutional court to arbitrate such matters. Poludenny attributed the confusion to a change under way by Ukraine from one constitution to another.

The Ukrainian leadership changed during a 2004 presidential election in which voters went to the polls twice. As part of a compromise that led to the second vote, Yushchenko's party, Our Ukraine, agreed that Ukraine would be governed by a parliament regardless of who won the election.

Background
Despite the Jan. 4 signing of a 5-year deal between Russia's Gazprom and Ukraine's Naftogas, Europe's confidence in the reliability of Russian gas supplies also has been eroded. That contract ended a conflict that disrupted deliveries of Russian gas to Europe for 2 days.

Michael Lelyveld, PFC Energy senior analyst for Russian and Caspian Service, called the constitutional issue "pretty murky."

"But the big issue is energy security," Lelyveld said. "People can argue back and forth over whether Russia or Ukraine got the better of the deal, but it certainly doesn't provide energy security for Russia, Ukraine, or the European Union, even in the near term. It's a deal that has to be watched from day to day.

Aside from Ukraine, he said a whole host of countries are facing Gazprom price pressure.

"Some haven't agreed to pay, and others have agreed but may be unable to pay," Lelyveld said. "When the bills pile up, what will Gazprom do—shut them off? If it does, there's likely to be another EU energy security scare, so any gains from the January agreement by itself are probably going to be short-lived."

The signed contract, effective Jan. 1, is based on a price of $230/1,000 cu m. But Naftogaz said it would be paying $95/1,000 cu m for gas from Russia through an intermediary and from Central Asia. The difference comes from a weighted average price between cheaper and larger quantities of gas from Turkmenistan and the gas from Russia.

Naftogaz also said the transit tariff on Russian gas to Europe will be raised from $1.09/1,000 cu m/100 km to $1.60/1,000 cu m/100 km. But the deal could be changed if circumstances change, point out observers.

Ukraine had been paying $50/1,000 cu m. The conflict broke out over Gazprom's insistence on an immediate quadrupling of this price and Naftogaz's subsequent refusal to pay the increase. Gazprom cut off supplies to Ukraine and accused Ukraine of "stealing gas" from the transit gas line: some 104 million cu m on Jan. 1 and 118 million cu m on Jan. 2.